Freddie announced that they have received approval to move forward with their plans to waive a lender’s requirement to obtain and submit a full residential appraisal report on a purchase loan transaction.
This is one step further than Freddie and Fannie had gone when they waived appraisals on certain refinance loans.
Freddie says that they will provide these waivers on a very limited basis, initially, based on the loan’s LTV and other attributes. They are willing to accept the property value and condition being agreed upon between buyers and sellers, without the need for an independent third party evaluation. Hmmm, where have I heard that possibility presented before? (Big Data)
Fannie just announced they will also follow suit and waive the appraisal requirements for some purchase transactions. That didn’t take long did it?.
This appears to be the next step to totally eliminate the need for the appraisal for all loans the agencies purchase. They have the technology, they have the data base, and they have the incentive to streamline the process and reduce costs.
Appraisers have argued that this cannot happen. The appraisal waivers were only being issued by Fannie or Freddie for non-cash out refinances of loans they already owned.
However, stop to think about it, on how many properties does Fannie and Freddie now hold the mortgage? Quite a few, I believe…
They are the largest secondary market source for conforming conventional mortgage loans. They even increased the loan limits for high-cost areas.
Chances are that when purchasing a new loan for a home purchase they are also paying off one in their existing portfolio on the same property.
They have been gathering and analyzing property data for quite a while and have an extensive data base of property values and trends throughout the country. Don’t kid yourself, they know the markets.
Is this a bad thing? It may be for appraisers. But, not necessarily for the housing industry. This will reduce costs for consumers, and save time for Realtors, lenders, and consumers. All good for the industry!
With this, lenders need to be very careful of the quality and compliance of the loans sold to the agencies that receive this appraisal waiver.
Why? History tells us that if a loan defaults the agencies will carefully analyze the loan data to determine any potential for a put back to the lender.
Without the appraisal, other areas will come under much closer scrutiny. All the “i”s must be dotted and the t’s crossed. There is not much margin for errors.
This is the next step in the progression of the agencies movement toward a more automated, streamlined loan purchase process with an increased rep & warrant relief. That’s good for lenders, for now.
With the collection of the UCD data, what might be their next move?